DAILY ANALYSIS

Yen appreciation appears when hedging is needed. Paying attention to USDJPY and seeking rebound short

10/09/2019 13:57:30

Yen appreciation appears when hedging is needed. Paying attention to USDJPY and seeking rebound short

Independent analyst: Zhen QuanXi

On September 6th, China, as the world's second economy country, she was stretching her muscle before the fourth quarter interest rate cut (Reduction - lowering the deposit reserve ratio of commercial banks), which is equivalent to the market expectation that the United States will cut interest rate once in September and December. In fact, reduction is the reflection of interest rate cut. Literally, China only cut interest rates once, the US dollar against the yuan rose immediately after reduction in the first trading day.

The European Central Bank’s interest rate decision is coming on the following the 12th, the market expects the European Central Bank to cut interest rates is already a matter of course.

It’s a turn of interest rate decision by the Fed on the 19th. The market has 100% confidence on cutting interest rates by 0.25%. Under the weight of the above risk stacking, it is bound to induce global assets to look for a safe investment place. In addition to the traditional hedging instrument, gold, yen is also an important hedging tool which obtains excellent liquidity.

Industry investors may refer to the following opinions from two major investment banks:

1. Morgan Stanley believes that long yen and Asian stock market, and short US high-yield credit market would have good risk-reward ratios, and these market valuations are relatively normal.

2. Goldman Sachs strategists said that they no longer recommend shorting the euro against the yen, but instead suggest shorting the US dollar against the yen.

Although the yen attributes to hedging instrument , the Japanese government would not be willing to have the yen appreciation, but harming Japanese export economy. The Bank of Japan has clearly stated that the market will Intervene in the foreign exchange market in appropriate time.

Therefore, the appreciation of the yen should not be overly optimistic expectation and blindly held. To quit while you are ahead for locking profits, if USDJPY falls closed to the previous support level of 105. It can avoid the huge risk of the Bank of Japan intervening in the foreign exchange market.

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